Priya Nair | May 18, 2015 Last Updated at 00:10 IST | Business StandardBe prepared to pay more if travelling abroad or if your child is studying there. Other impacts can be varied

Your family and you are flying to the US next week on holiday. Flight tickets and hotel bookings were done in advance. So, why should the rupee depreciation bother you? It should because all other expenses, such as sightseeing, local transfers and food will increase as a result of the fall in the rupee.

Similarly, if your child is studying in a foreign university, don’t be surprised if tuition fees increase substantially over last year.

There are also some advantages of a falling rupee. Those working abroad will gain, as the same amount they remit will translate into more rupees.

“It looks like the rupee will be in the 64-65 range (to the dollar). As the rupee tends to be overvalued and exports are not growing much, the Reserve Bank might be willing to let the rupee depreciate,” says Madan Sabnavis, chief economist, CARE Ratings.

The immediate impact will be on foreign travel and students studying abroad. The indirect impact will be on other expenses, too, as oil prices will go up and this could push up prices of other commodities. However, this time, as the price of crude oil in the international market is low, there might not be much of an impact on domestic oil prices, says Sabnavis.

Below is a look at some ways a weaker rupee will impact your life and what you can do about it.

Foreign travel
Europe tours are popular with Indians in the summer months of April to June. Most people book in October for departures starting in April. Those who have booked and paid earlier, including the forex component, will not feel much of an impact. However, travellers who don’t pay the forex component in advance might feel the pinch. Usually, travellers pay the deposit and for flight tickets in rupees, in advance. The forex component, which covers accommodation, meals, sight-seeing and excursions, can be paid later. “For trips in April, packages are booked as early as October. We pushed many of our customers to pay in advance. Those who did not pay then might feel the pinch now,” says Daniel D’Souza, head of sales, Tour Operating, Kuoni India.

One way to avoid last-minute heartburn is to pay for your entire package in advance and not only the rupee component. If booking last-minute, choosing a short-haul holiday to a destination closer to home rather than a long-haul holiday is also a way to save some costs.

Tips to save

Reduce the number of days from 10 to, say, eight

Reduce the number of excursions

Switching to a lower category hotel or staying in a bed and breakfast or home stay

Cut on shopping rather than sight-seeing, since it is the experience that matters

Opting for public transport such as trains, subway or buses, rather than renting a car

While sightseeing, choose days when tourists are allowed to go for free or given discounts. Most monuments abroad have such days

While shopping, buying from flea markets can work out cheaper than from stores

Take a decent amount of cash with you, as you might not get good rates while travelling

Pre-paid travel cards that allow you to load multiple currencies are a good option. In these cards, the value of the rupee is of the date the money is loaded to the card

Foreign education
Students studying abroad also suffer when the rupee falls. The US, Britain, Canada, Singapore and Australia are popular countries for Indian students. The university will not offer any leeway in tuition fees. Students will have to pay the entire amount. In most cases, you will have to pay before a term starts.

Given the high tuition fees in foreign universities and the cost of living, most students take some loan and pay for the rest by scholarships or taking a part-time job. “When the rupee falls, it becomes difficult for the entire family, not only the student. And, not many individuals know how to hedge themselves against currency fluctuations by using derivative products. What you can do is try and pay the entire fee upfront when the exchange rate is low. Most universities give a discount of one or two per cent if you do so,” says Naveen Chopra, of The Chopras, a foreign educational consultancy.

Neeraj Saxena, chief executive, Avanse, a non-banking financial company that gives education loans, says there is an option to enhance the loan amount during the course. “We don’t usually disburse the full loan amount at one go. We do as per the semester. So, if the fees increase in the third semester, we can increase the loan amount,” he advises.

Saxena suggest students going abroad should look for scholarships or part-time jobs like teaching assistantships. “We find of the Rs 30-35 lakh required for a foreign university course, students often are able to earn Rs 8-10 lakh through part-time jobs, which pay by the hour,” he says.

Tips to save:

Using discount coupons given by universities and accepted at all major stores

Using cards like the ISIC (a specialised card for students) for travelling, eating out, even shopping at some departmental stores

Going for free concerts, to movie halls which offer student discounts

Going to budget pubs, during happy hours, for leisure

Use special cards that offer discounts to students for eating out and shopping

Medical costs
The rupee’s weakness will push up medical costs, too. About 30-40 per cent of a hospital’s cost is on account of medical equipment and of these, 80 per cent is imported, says Vivek Desai, managing director, HOSMAC, a health care management consultancy. “Many common procedures in cardiology and cancer care use imported equipment. Even orthopaedic implants and consumables used in laboratories are imported. Any increase in their costs will be passed on to patients and there is nothing the latter can do about it. That is why medical insurance is a must. That, too, comes with a ceiling,” he says.

Other costs like air-conditioning and flooring in hospitals, also imported, will also see an increase and hospitals are likely to pass these on to patients by way of higher charges.

Patients going abroad for treatment will also see an increase in cost due to the rupee’s fall.

Tips to save:

Health insurance is one way you can deal with rising medical costs. Buy one early in life

Even if covered under your employer’s group medical insurance, take a separate family floater

Buy a top-up medical insurance to increase your sum assured without too much increase in premium

A weak rupee will benefitRemittances
Non-resident Indians (NRIs) sending money home will benefit from the rupee’s weakness, as they will get more returns for what they send. Typically, NRIs with higher disposable incomes send more money to India when the rupee falls, says Sudesh Giriyan, chief operating officer, Xpress Money. “We will see an increase in remittances when the rupee crosses 64 to a dollar. In the case of cash remittances, we don’t see much increase because these are smaller ticket-size. But in direct remittances, which are bigger ticket-size, currency value has a bigger impact,”

Many NRIs also take loans from banks abroad, since the interest rates are lower, and remit money to India in order to invest, he adds.

There is usually an increase of seven to 10 per cent in remittances on account of rupee weakness, says K A Babu, head-retail and NRI banking, Federal Bank. Remittances from the Gulf countries tend to increase in such times than those from elsewhere.

With regard to investments, those from the lower income group prefer bank fixed deposits – NRE rupee deposits or FCNR deposits which are in foreign currency. The NRE deposits offer the same rates as domestic FDs and can be liquidated easily. The FCNR deposits will provide protection from exchange rate volatility, though the rates are lower.

“Ideally, investors should have a mix of both kinds of deposits. That way, they can earn high interest rates and also get a hedge from currency fluctuation,” Babu says.

For NRIs in the high income segment, banks and wealth management firms offer portfolio management services, through which they can invest in stocks, PMS schemes, mutual funds, fixed income products, real estate, etc. The preference is usually for land or residential property. Some NRIs might also look to expand their business in India and buy commercial property.

International funds
International equity funds that invest abroad will benefit from the fall in the rupee. Investors of such funds would have seen their portfolios rise in the past few months. According to data from Value Research, over the past three-month period, returns from international funds have been the highest at 6.19 per cent, while equity multi-cap funds have seen their returns fall 3.19 per cent.

But these gains are marginal and should not be the only reason for investing in international equity funds. For instance, over a one-year period, multi-cap funds have given returns of 34.84 per cent, while in the case of international funds, it is 7.78 per cent.

The US market is currently doing well and will definitely give better returns in the near term, as it will not be as volatile as the Indian equity market. But over a longer term, that is a five-year period, Indian equities will definitely give better returns. So, one can look at international funds provided they have sufficient exposure to Indian equities, say experts.

Anand Radhakrishnan, chief investment officer at Franklin Equity, Franklin Templeton Investments – India, also says investors should not look to time the markets, but invest on a regular basis and in a systematic manner. “Typically, the exposure would depend on the individual’s risk profile and investment objective, but as a thumb rule, one should have at least 20 per cent of their investment portfolio allocated to international assets. Equity investments warrant a longer investment horizon and we recommend investors come in with a three-to-five year horizon or more,” he says.

By: Sandeep Singh | New Delhi | March 19, 2015 9:17 am | Financial Express
Investors in the US reacted favourably on Wednesday as the Federal Reserve moved a step closer to its first rate hike since 2006. As the central bank’s outlook pointed to a hike in June or later in the year, Indian markets, too, may not be impacted much for now. However, a sooner-than-expected hike would impact markets and also lead to volatility in the rupee. Sandeep Singh explains the issues around India and the US Fed decision.

1. Why is a rate hike anticipated?

The US economy grew at 5 per cent in the quarter ended September 2014. The data came in December 2014, and on January 28, the Federal Open Market Committee (FOMC) — the policy-setting body of the Federal Reserve System — said faster progress towards the committee’s employment and inflation objectives may result in a hike in rates sooner than anticipated. Markets have speculated ever since on a rate hike announcement. Following FOMC January, the BSE Sensex fell for seven trading sessions, losing over 1,400 points. Over the last two trading sessions FIIs have pulled out a net Rs 1,154 crore.

2. What is the likely impact of a US Fed rate hike on the Indian markets?

Indian markets anticipate a rate hike, and as the Fed has indicated to do so in June or later, markets may not be impacted much. If, however, the hike comes earlier, or if the quantum of hike is more than expected, markets may react sharply. Funds may flow out of both debt and equity markets, and put under pressure the rupee, which over the last couple of weeks has inched towards 63 against the dollar.

3. Why will a hike in interest rates in US result in outflows?

The differential between interest rates in the US and India is big, and a small hike in the US may not be attractive enough. However, a signal from the US Fed will ultimately lead to subsequent rate hikes. A series of hikes in interest rates in the US over a period of time will raise the borrowing cost for carry trade (borrow from US and invest in India), and thereby reduce their risk-adjusted return in India. On the other hand, the Reserve Bank of India has embarked on cutting interest rates, and has cut repo rates twice by 25 bps each. A cut in India and a hike in US further reduces their risk-adjusted return. Experts also say that this may make US bonds more attractive. The US is in any case considered a safe haven, and investors looking for stable returns will be more attracted towards US bonds.

4. How will it impact the equity markets?

The outflow of funds may not be restricted to the debt market, and extend to equity markets because a higher return from a safer instrument (US bonds) may be considered a better investment for conservative investors or funds who may have parked funds in Indian equities. Emerging market equities are anyway considered a risky asset, and therefore India, along with other emerging markets, are more vulnerable to outflows when the US raises its federal funds rate.

TNN | Dec 24, 2014, 04.16AM IST | Times of IndiaThe Reserve Bank of India has extended the deadline for turning in pre-2005 currency notes to June 30, 2015.
MUMBAI: The Reserve Bank of India has extended the deadline for turning in pre-2005 currency notes to June 30, 2015. Earlier, all citizens had to turn them in by this month-end. The most visible difference between the old and new notes is that the latter carry the year of printing.

As part of its drive to withdraw currency notes with basic security features, RBI had said that all notes issued prior to 2005 would be withdrawn from circulation. They would continue to be legal tender, but RBI would destroy them as and when they come into bank branches.

In a statement released here on Tuesday, RBI said that it is soliciting cooperation from the public in withdrawing these notes from circulation and has urged them to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them. The RBI has stated that the notes can be exchanged for their full value. It has also clarified that all such notes continue to remain legal tender.

“The notes in Mahatma Gandhi series have been in circulation for a decade. A majority of the old notes have also been withdrawn through bank branches. It has, therefore, decided to withdraw the remaining old design notes from circulation. Not having currency notes in multiple series in circulation at the same time is a standard international practice,” the RBI statement said.

Both HDFC and ICICI Bank announced that they have increased their benchmark rates, which are used for pricing floating rate home loans, by 25 basis points.
TNN | Aug 23, 2013, 03.37AM IST| Times of India

MUMBAI: The rupee crossed the 65 mark against the US dollar on Wednesday with its impact being felt across the board. For the common man the immediate pain is on account of an increase in home loan rates by ICICI Bank and HDFC, which will increase the burden of equated monthly instalments.

Both HDFC and ICICI Bank announced that they have increased their benchmark rates, which are used for pricing floating rate home loans, by 25 basis points. A quarter percentage point increase in rates pushes up EMIs on a Rs 10 lakh home loan by Rs 170 a month.

The increase in lending rates by two of the largest private lenders is despite statements by the government that long-term rates will not rise. The finance ministry had said that RBI’s strategy to buy back long-term bonds would keep long-term yields in check even as short-term rates continue to be high. With banks talking about 70 being the next resistance level, hopes of an early end to volatility and monetary tightening are fading.

The rupee is creating upward pressure on interest rates from three fronts. First, RBI needs to raise short-term rates to rein in the dollar. This has already happened. So far, banks had refrained from raising rates hoping the measures were short term. But with the rupee breaching 65, banks feel the measures are here to stay. Second, at the present exchange rate, oil prices in rupee terms will increase and drive up inflation which will cause RBI to keep rates high. Third, expensive dollars will make business unviable and increase bad loans thus hurting interest income of banks.

On Thursday the rupee opened at 64.90 and soon breached the 65 level and weakened to a new historic low of 65.56 per dollar. However, it recovered to close at 64.63, 59 paise lower than its previous close. The trigger for Wednesday’s fall was the release of minutes of a July meeting by the US Federal Reserve which led investors to believe that the US central bank was inclined to gradually reduce its monetary stimulus of $65 billion a month.

Currencies in Indonesia, Malaysia and Thailand all hit multi-year lows on concerns that the Fed’s scaling back of stimulus would trigger further capital outflows from emerging markets. Fitch ratings said that India and Indonesia were not under risk of immediate downgrade but warned that it may act if the volatility is not controlled. “There would be a direct impact on credit worthiness if sovereigns ran down foreign currency levels to dangerously low levels. But we don’t think we are there yet and there are good prospects that we won’t get there, assuming that policy management is sufficiently robust enough.”

Congratulations! You’ve secured admission in an educational institute abroad and are all set to make the big move. Before you go, here are a few tips you must keep in mind:

How much fees the RBI allows you to remit

The RBI regulation states that ‘for studies abroad the estimate received from the institution abroad or $100,000 per academic year, whichever is higher, may be availed of.’ So you can freely remit an amount of up to $100,000 per annum from India towards the tuition fees. If your fees exceed $ 100,000 per annum, then you need to take a letter from the foreign college giving the estimate of fees. You can remit the amount mentioned in the letter without taking permission from the Reserve Bank or any other authority.

“All you need to do is to apply at the bank where you have an account. You would need to submit an application along with form A2 and if required the admission letter mentioning fees,” explains Rajesh Dhruva, a chartered accountant and Chief Executive of Femaonline.com.

Best way to remit fees

If you have taken a bank loan, the bank remits the fees directly to the university as per documents submitted by you.

If you are paying the fees out of your own sources, you can either wire the funds while you are in India or you can carry a demand draft in the name of the university while you travel. While the difference in cost may not be significant, a demand draft can take 7-10 days to clear while a wire transfer can be done in a couple of days.

Best way to remit regular living expenses

As we saw in point 1 above, the higher of $100,000 or total study fees is allowed to be remitted each academic year.

In addition, a student may also carry with him while travelling, an amount of $10,000 for incidental expenses (that is, expenses other than fees) out of which $3,000 may be carried in the form of foreign currency.

Receiving money from India afterwards

The Reserve Bank of India (RBI) has accorded a special status for students going abroad to study. Students will now be considered Non Resident Indians under the Foreign Exchange Management Act (FEMA) from the day he leaves India.

This means, as non-residents, students will be eligible to avail of several facilities which are not available to residents. Once students go abroad, they will be eligible to receive remittances from close relatives in India of up to $200,000 per financial year which can be used towards maintenance or for studies. This is in addition to the remittance limit for fees.

“The applicant parent may apply to his bank where he has an account for more than a year. An application in a specified form along with form A2 must be submitted. Many banks now do insist on form 15CA and 15 CB (Chartered Accountant certificate) as well. If the account is not held for at least a year, the bank may ask for copies of income tax returns of previous years,” Dhruva adds.

In addition to the above, students will be able to open NRO and NRE bank accounts and remit balances from those accounts abroad. While NRE account balances are fully repatriable, NRO account balance can be repatriated to the extent of $1 million per financial year. However, the limits for fees and maintenance are quite generous, therefore a very small percentage of students will use the NRO or NRE account repatriation route. “But students must remember that as soon as they become NRIs, they are obligated to convert their existing Indian bank and financial accounts into Non Resident status to be in compliance with the law,” Dhruva adds.

Opening a bank account abroad

Try to open a local bank account as soon as possible. You would need to submit certain documents such as your passport, visa as well as proof of your admission to the college.

If your parents are remitting funds to you, it would be best for them to wire it to your local bank account. Moreover, if you are carrying high value drafts and traveller’s cheques, you don’t want to worry about safe-keeping for long.

Travel insurance

Most universities provide a medical insurance cover for students. However, the date when the coverage begins might not coincide with the date your land in the foreign country. Experts advice that it is best to take travel insurance which covers any incidences that may occur at the time of travel (such as loss of passport, loss of luggage etc) as well as hospitalisation expenses in the foreign country up till the date when the university coverage begins.

Cost: For the US, a coverage of USD 50,000 would cost around Rs 1,500-2,000 for a 30 day term. This would be slightly lower for other countries.

Remitting money back to India

A student can also remit money back to India at any point of time. You can either wire the proceeds to your bank account or parents’ bank account in India or you can carry foreign exchange with you when you travel to India. While there is no limit on the amount you can carry with you, if the aggregate value (of cash, cheques, traveller’s cheques) exceeds $10,000 and/or the value of foreign currency alone exceeds $5,000, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.

Tip pay education loan installments

While banks allow the option to start repayment after you complete your course, here is a tip that can help you keep interest costs low. Experts usually recommend students to keep paying the interest portion of the loan so that it does not compound into a large interest outflow.

For instance, let us say you have taken a loan of Rs 15 lakh at an interest rate of 12% per annum. Let us assume that you will start repaying the loan after 2 years. During these two years, the bank will calculate interest on simple interest basis and add it to your loan outstanding. So your interest amount for these two years in this example would work out to Rs 3.6 lakh. That pushes up your loan outstanding to Rs 18.6 lakh on which the EMI when you start repaying would work out to Rs 32,834 over a period of 7 years.

Now instead of letting the interest pile up in the two years, you can repay Rs 15,000 per month (Rs 3.6 lakh divided by 24) for two years. Your EMI would then be calculated on Rs 15 lakh only, that is Rs 26,479; a difference of Rs 6,355 per month.

The best way to schedule EMI payments would be to give a standing instruction to the bank.

Taxation of scholarships

Taxation in India: Vineet Agarwal, Director, KPMG India explains, “Scholarships are not taxed in India. So if you received a scholarship that would not be taxed in India.” For taxation in the foreign country, you would need to look at the tax laws of that country. In the US for instance, if you received a scholarship or fellowship, all or part of it may be taxable. Generally, the entire amount is taxable if you are not a candidate for a degree.

If you are a candidate for a degree, the portion of scholarship used for tuition fees, books and supplies required for your course would not be taxable. Any portion used for other purposes such as accommodation and living expenses will be taxable.

Other income tax liabilities

Taxation in India: “It is important to look at residential status in India under the Indian Income Tax Act. Under the Income Tax Act, you are considered as a resident of India if you have been in India for 182 days or more during the financial year (April to March) or you have been in India for 60 days in the financial year and 365 days or more in the last 4 years. You are considered a NRI only if you do not meet these conditions,” explains Agarwal. As a student leaving India in August or September of the financial year, it is most likely that you will be an NRI for income tax purposes. As an NRI, you do not have to pay tax on your foreign wages or a stipend in India. If you have any income in India, say in the form of interest from bank accounts, that will be taxed in India and you would have to file a tax return for the same.

Taxation in the foreign country would depend on the tax rules in that country. In the US for instance, as a student on an F1 visa, you are considered to be a non-resident of the US for the first 5 calendar years that you are on this visa. If you are on a J visa, this period is 2 years. “So as a non-resident of the US, you will have to pay taxes in the US only on your income from the US,” says Roy Vargis, an Illinois based CPA and promoter of http://www.IndianCPA.com.

As a student, you may be working part time as a research or teaching assistant or doing any other part time job. Any income that you earn either as wages or as stipend is taxable in the US.

Vargis makes an important point, “In order to claim the status of non-resident in the US, the student must file Form 8843 by April 15th for each of the 5 tax years. If he fails to file this form, he will be treated as a resident and any global income that he may have will be taxed in the US.”

Foreign investors, who hold 40% of free float, have lost 10% on rupee fall this year so far

The biggest buyers in Indian markets over the past 10 years are staring at huge losses as a falling rupee chips away at their portfolios.

The BSE Sensex has fallen only 0.52 per cent since the beginning of 2013, from 19,426.71 to 19,324.77 on Monday. However, foreign institutional investors (FIIs) have seen losses of about 10 per cent because of the rupee depreciation. Some have seen losses of nearly 20 per cent on account of the fall in the market.

This could pose a risk of outflows from the equity market, said experts, who point out that FIIs collectively hold 43.4 per cent of the publicly held shares, or free float, in Indian markets.

However, the sharp decline in the rupee might be a deterrent for many foreign investors to exit Indian stocks, as many of the investments were made when the currency was at much higher levels. In 2012, FIIs poured in close to $26 billion. Since FII shareholdings are valued in the rupee, any fall in the currency would impact them.

Selling by FIIs, the biggest buyers of Indian stocks in the past decade, could hit sectors that have experienced high inflows, according to a July report, India Strategy, by Motilal Oswal Securities. “If FII selling was to continue in the coming months, we believe sectors that saw high allocations earlier will be impacted,” said the report, authored by Navin Agarwal, Rajat Rajgarhia and Dipankar Mitra.

The report noted FIIs bought in $124 billion in 10 years, about half of which came in after 2010. Foreign institutions have bought in $67 billion since January 2010. They were net sellers by $1.6 billion in Indian equities during June.

U R Bhat, managing director at Dalton Capital Advisors (India), a registered FII, said high foreign holdings can pose a peril. “That (FII ownership) is quite a risk…. They generally factor in a four-five per cent depreciation in the currency. This is dramatically more than that.” The depreciating rupee, he said, has caused severe underperformance for anyone who chose India over developed markets.

“This needs to be compared with the 13-14 per cent gain in the American markets. So, an institution which chooses to put its money in India as opposed to the US is sitting on relative losses of over 25 per cent,” he added. FIIs have been net buyers in India equities by $13.42 billion in 2013.

Anish Damania, business head-institutional equity at Emkay Global Financial Services, said investors would continue to watch the rupee. “Flows have been weak because there has been a global trend (to move) away from emerging markets. Inflows into India have pretty much stopped. People are worried the rupee depreciation could get worse and are also keeping an eye on corporate earnings,” he said.

The Motilal Oswal report said financial sector companies, excluding public sector banks, accounted for 25 per cent of the flows since 2010. Utilities accounted for 12 per cent, consumer companies 11 per cent, information technology nine per cent and automobile companies eight per cent.

The rupee touched a new low on Monday, falling past 61 against the dollar on fears that the US might cut back on its injections of liquidity into the global financial system. It has depreciated 10.22 per cent against the dollar since January and 13 per cent since May.

FII ownership had hit its previous high at the end of 2007, at 41.9 per cent. It had touched a low of 35 per cent in March 2009, according to data from Motilal Oswal Securities.

Some are more optimistic on foreign flows. Rajesh Cheruvu, chief investment officer-India at The Royal Bank of Scotland’s private banking division, said there could be an impact on account of money coming in from short-term arbitrageurs, but said longer term money was unlikely to exit in a hurry. “There had been a fall in risk appetite for emerging markets (EMs). But over the last one week, interest seems to have returned. As return of appetite and improvement in EM flows is in place, India is expected to attract flows into the market on account of superior growth and structural advantages, including strong domestic demand,” he added.